Facts of the Case

The assessee, engaged in the business of operating a cinema theatre, was subjected to scrutiny assessment under Section 143(3) of the Income-tax Act for the relevant assessment years. During assessment proceedings, the Assessing Officer examined the books of account, receipts, and related financial records and made additions to the returned income on the ground that certain income components were not satisfactorily explained or substantiated.

Issues Involved

  1. Whether the additions made during scrutiny assessment were justified.
  2. Whether the assessee had maintained reliable books of account and supporting evidence.
  3. Whether the income declared reflected the true business receipts of the theatre operations.

Petitioner’s (Assessee’s) Arguments

  • The assessee contended that the assessment order was based on incorrect appreciation of facts.
  • It was argued that proper books of account were maintained in the ordinary course of business.
  • The assessee submitted that the additions were arbitrary and not supported by concrete evidence.
  • It was further contended that the declared income correctly represented actual business operations.

Respondent’s (Revenue’s) Arguments

  • The Revenue supported the findings of the Assessing Officer and Commissioner (Appeals).
  • It was submitted that discrepancies in records and inadequate explanations justified the additions.
  • The Department argued that the assessee failed to substantiate the correctness and completeness of the declared receipts.
  • Therefore, the assessment order was lawful and justified.

Court Order / Findings (ITAT)

  • Scrutiny assessment must be based on proper examination of books and supporting evidence.
  • The burden lies on the assessee to establish the accuracy of declared income.
  • Where discrepancies or insufficiencies exist, the Assessing Officer may make appropriate additions.

Important Clarification

The Tribunal emphasized that maintenance of books alone is not sufficient; the assessee must demonstrate their reliability and completeness. Additions may be sustained where records do not convincingly reflect actual income.

Link to download the order –

https://itat.gov.in/public/files/upload/1626416037-139%20of%202019%20+1%20Bhagwan%20Theatre%20(Assessee%202%20Appeals)%20143%20order.pdf

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